Netflix Shares Surging After a Blowout Quarter

Netflix - Sign - 2011
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The beleaguered company posts financial results that exceed expectations, sending the stock 15 percent higher after the closing bell.

Netflix shares were surging 15 percent after the closing bell Wednesday on news that it trounced financial expectations in the fourth quarter.

After shares gradually fell some 70 percent since July due to one debacle after another, investors and analysts obviously weren't expecting something stellar in Netflix's fourth-quarter earnings report. But their  reaction to the report was very positive.

Neflix earned 73 cents per share in the quarter while analysts expected just 54 cents. Revenue was $876 million, about $19 million more than analyst expectations, up 47 percent year-over-year. Net income fell 14 percent to $40.7 million.

Netflix finished the fourth quarter with 24.4 million subscribers, up 25 percent from a year ago and a slight iprovement over the 23.8 million it had at the end of the third quarter.

Netflix shares rose 3 percent during the regular trading session to $95.04.

In a lengthy letter to investors, CEO Reed Hastings said Wednesday that subscribers streamed 2 billion hours of video in the fourth quarter, about 30 hours per member. He also warned that he expects "to continue to offer their video service as a free extra with Prime (their shipping service) domestically but also to brand their video subscription offering as a standalone service at a price less than ours."

Hastings acknowledged that it will be losing some streaming titles at the end of February when a deal with Starz runs out, but he noted that some titles will remain because Netflix licensed them directly from the studios. He said "the only significant loss" will be 15 Disney titles, such as Toy Story 3 and Tangled. The 15 titles represent 2 percent of domestic streaming.

Through an EPIX deal, though, family titles like Rango, Hugo and The Adventures of Tintin are coming to Netflix streaming this year, and next year more will come through an arrangement with DreamWorks Animation.

Hastings praised Showtime's TV Everywhere application and, as he has before, HBO Go.

"Both broadcast and cable networks will effectively also become Internet networks like Netflix," he said in the letter.

During a conference call with analysts, Hastings said Netflix is best at  "catch-up TV" because of its penchant for licensing entire seasons of TV shows. "We would rather be additive to cable than be competetive," he said.

The letter also updated Netflix's effort at original TV-like content. All eight episodes of Lilyhammer starring Steven Van Zandt will debut Feb. 6; House of Cards starring Kevin Spacey is coming in the fourth quarter and an original fourth season of Arrested Development is due next year.

Hastings also acknowledged that Netflix is now adhering to a 56-day moratorium on DVDs from Warner home Entertainment, recently raised from a 28-day delay.

"While we didn't like the new release date schemes, we decided that it was better for our members for us to maintain a direct relationship with Warner under the selling terms it has imposed," Hastings wrote.

"We suspect there will be increasingly differentiated dates as the studios re-configure their shrinking packaged goods businesses."

Asked about his dealings with Warner Bros., he told analysts Wednesday that Netflix has "a perfectly healthy, respectable relationship" with the studio.